(1888PressRelease)
July 16, 2009 - The COO of BBVA, José Ignacio Goirigolzarri stated today that “the crisis will come to an end, but will cause a change in the configuration of the international financial system. We will see the system undergo a de-leveraging process, and there will be greater regulatory pressure. There will be restructuring and consolidation in the banking sector, and retail banking models will triumph. During his speech at the Financial Journalism course “The world after the crash” organised by the UAM/El País Journalism School – BBVA Foundation at the Miramar Palace in San Sebastián, the venue for UPV summer courses, José Ignacio Goirigolzarri added that, as a result of the economic and financial situation of the last two years, it will be necessary to overhaul and normalize the financial system in a rapid and orderly fashion.”
* “The crisis will come to an end, but will cause a change in the configuration of the international financial system. The system will undergo a de-leveraging process, there will be greater regulatory pressure, retail banking models will become more dominant and we will see restructuring and consolidation in the banking sector”.
* “In Spain, structural measures should be undertaken to increase the growth potential of the Spanish economy. Financing requirements must be eased, and we need to improve our competitiveness and productivity model. But we are not starting from zero.”
The COO of BBVA, José Ignacio Goirigolzarri stated today that “the crisis will come to an end, but will cause a change in the configuration of the international financial system. We will see the system undergo a de-leveraging process, and there will be greater regulatory pressure. There will be restructuring and consolidation in the banking sector, and retail banking models will triumph. During his speech at the Financial Journalism course “The world after the crash” organised by the UAM/El País Journalism School – BBVA Foundation at the Miramar Palace in San Sebastián, the venue for UPV summer courses, José Ignacio Goirigolzarri added that, as a result of the economic and financial situation of the last two years, it will be necessary to overhaul and normalize the financial system in a rapid and orderly fashion.”
BBVA’s COO started his talk by discussing the increased complexity of the global economy in the last several years and the profound macroeconomic changes that have occurred during this period and how they have affected the financial sector.
José Ignacio Goirigolzarri explained that we went through a period of sustained economic growth, which broke down in the summer of 2007 due, in large part, to the excesses committed during the economic boom.
The COO of BBVA explained that the main culprits behind the crisis were low interest rates, an underestimation of risk and, above all regulatory arbitrage, whose main consequence was the excessive leveraging of the financial system in precisely the riskiest debt formats. As a result of the above factors, the private sector became excessively indebted and assets became overvalued, which in some countries triggered a real estate boom.
From financial crisis to global economic crisis
“The fragile equilibrium that existed was thrown out of kilter by the subprime crisis, which is only the tip of the iceberg. At this point, uncertainty gripped the market and we started to see bank losses and stricter lending conditions,” explained José Ignacio Goirigolzarri.
“However,” he continued, “what initially appeared to be a financial crisis spilled over into the real economy, with global trade serving as the main transmission vector. The end result is a crisis of monstrous proportions, both in terms of its scope and the amount of wealth it has destroyed."
To mitigate the effects of this huge global crisis, governments are acting quickly and decisively by implementing monetary and fiscal measures.
Different regions, different measures
Nevertheless, he explained, the varying performances between regions is evident both in developed and emerging countries. Accordingly, in the United States the measures were characterised by the speed with which they were implemented, and their flexibility and coordination, in contrast to Europe, where governments were slower to react and had a more heterogeneous approach. Latin America still has scope to implement counter-cyclical policies, and also enjoys a solid financial position. China is characterized by growth supported by a major fiscal stimulus program. In regard to Emerging Europe, the priority is to reduce the macroeconomic imbalances and the vulnerabilities of the financial systems in the region.
In the short term, activity will continue to decline to varying degrees depending on the region, and on whether they are raw material exporters and their dependence on external financing.
Spain
In regard to Spain, José Ignacio Goirigolzarri, explained three key aspects of the economy: highly leveraged, major exposure to the real estate sector and a labour market that is very sensitive to the economic cycle.
In the first place he underscored that “the Spanish economy will continue to have new financing needs in the future.” He went on to explain that another differentiating factor in the Spanish economy is its high exposure to the real estate sector, which achieved a good deal of its past growth through high leverage ratios.
José Ignacio Goirigolzarri went on to point out that the Spanish economy generated 33% of the total new jobs in the entire European Union (EU-15) in the 2000-2007 period. However, in 2008, it destroyed 108,500 jobs, while the rest of the EU generated 1.8 million new jobs.
“The Spanish economy is undergoing a sharp adjustment, and although there have been some signs that the free fall phase has ended, there is still a long way to go. “In Spain, structural measures should be undertaken to increase the growth potential of the Spanish economy: an easing of lending restrictions, improved competitiveness and an improved productivity model.
Future of the economy and the financial system
“In the medium to long term, the configuration will change both on the supply side and the demand side, which will result in lower GDP growth”, underlined the BBVA COO.
“The crisis will come to an end, but will cause a change in the configuration of the international financial system. “ A de-leveraging process, greater regulatory pressure, the triumph of retail banking models and bank restructuring and consolidation, are only some of the changes the sector will undergo”. In addition, all bad management practices should be penalised in order to ensure that such a crisis does not happen again.
“In any event, economic recovery will be contingent on the normalization of the financial system” affirmed the COO of BBVA.
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